Why we must support the Government’s deal

Shanker Singham is Chair of Global Vision, CEO of Competere, Head of Trade at the Centre for Economics and Business Research, a senior advisor to Huntsworth and Grayling and Director of the International Trade and Competition Unit at the Institute of Economic Affairs. He also chaired the Technical Panel of Prosperity UK’s Alternative Arrangements Commission and was the author of a General Theory of Trade and Competition; Trade Liberalisation and Competitive Markets.

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MPs are right to be incandescent with rage as a result of choice the government has put to them. A true Hobson’s choice. At least one commentator has said this is a choice between certain or probable death. The announcement of my position yesterday elicited a number of colourful reactions. Ultimately, in choosing between these bad decisions, a very fine judgement based on many variables, some known and some unknown is required. Reasonable people can disagree on these fine judgements, and I would invite those who disagree with mine to engage at a granular level with the assumptions on which those judgements are based. If we can at least agree the assumptions, then perhaps a way through the fog can be found. But it is terribly important as we go forward that just as those who voted with the government yesterday for the first time are not capitulating, or treasonous, those who wish to have a successful Brexit and voted against the government are not stubborn, obstinate, die in a ditch sorts. We must be ruled by the head and not the heart, but we must also understand that in the fight ahead (and make no mistake, whatever happens it will be a real fight, against a powerful and many headed opponent) it is stout hearts that will ultimately carry the vision of the British people and win the war.

My view of the Withdrawal agreement is unchanged. It cedes much of our negotiating leverage and guides the future negotiation to a permanent customs union with the EU. As someone who passionately believes in the power of liberalising international trade to lift people out of poverty and boost prosperity, I am horrified that we have ended up in this place. It is not a deal that is the best we could have obtained from the EU, but it is the result of some spectacularly bad negotiating tactics, strategy and approach.

But my view as to whether MPs should back this highly flawed agreement has changed. There are a number of variables and assumptions which I lay out below.

No Deal and the Deliberate Loss of Leverage

With the current Prime Minister and those around her in place, the path to leaving on WTO terms is blocked. The Prime Minister took that off the table when she conceded to three of her Cabinet colleagues that a vote against MV2 would lead automatically to a vote on Article 50 extension – a vote she well knew would be won in the House easily. The repercussions of this are immense. Not only is our exit hatch out of the EU locked, this move takes away our leverage to demand changes to the Withdrawal agreement. The fact that this decision was taken while the Attorney-General was seeking those very changes to the Withdrawal Agreement and political declaration was an extraordinary act of self-sabotage. The fact that the AG was able to come back with anything at all was a minor miracle. It occurred, because unlike our own government, the European Commission does want to explore what alternative arrangements for the Irish border might look like. Huge efforts were expended to bring the warring factions of the Conservative party together in the Malthouse Compromise on these Alternative Arrangements, and these were entirely lost because the Government chose not to pursue them with the Commission. Even now, the EU is prepared to add paragraphs to the Political Declaration on this subject. We should not downplay what the Attorney-General was able to get – the commitment to a joint Alternative Arrangements working group, and the statement on future negotiations were important, and a well-intentioned government that was actually seeking the Brexit Prize would be able to make something of this.

Many say that No Deal is the legal default, and that is true as a matter of law. But it is now clear that this Prime Minister, this Parliament, and this Speaker will not allow the UK to leave the EU without a deal. A long extension will be sought if this deal does not pass. It is equally clear that the EU will only give a long extension of over a year at least, and only if there is something further to negotiate. The EU has also made clear that the same backstop will be the result of that longer negotiation unless it is not required (and that can only occur if we are in the EU Customs Union, or at the very least the EU customs union for goods and agrifood). That is why Juncker’s immediate response to the request for renegotiation was a permanent customs union.

What About No Deal after a Long Extension?

Stand firm. Never surrender. The clarion calls to oppose the Withdrawal Agreement were heard in Parliament Square yesterday, as they are heard everyday on social media and across the country. They argue a long extension is preferable to the Withdrawal Agreement; that we will be able to leave without a deal at some point.

But how? Even if the government were to get behind No Deal, there are not the votes for it in Parliament. In the indicative votes, only 160 MPs supported No Deal with 400 voting against, a majority of 240.

More importantly, if anything the voices demanding no cliff edge such as the CBI and others will only intensify their calls at the end of the long extension period. It will just be another cliff edge, except this time they will have been able to mobilise their forces much more powerfully, and will be able to spend more money on campaigns, some of which will no doubt be supported by the European Union itself. Our own regulatory position will lock more closely into the EU’s. During the last Article 50 period, we have lost any opportunity we have had to influence the EU (including being kept out of critical meetings and votes). That will not improve mysteriously in an extended Article 50 period.

Brexiteers have been fighting an insurgency against an extremely well-organised and well-funded establishment operation that is in control of almost all aspects of British society, and will fight hard to maintain the status quo. A long extension would be disaster for an insurgency and would give all the advantage to the incumbent, establishment forces. It is almost certain that during this long extension period, this government (based on its track record to date) would again cave in and agree a Second Referendum which could very well lead to Article 50 extension. Establishment operations can be blindsided once (they were genuinely shocked by the 2016 Referendum result), but never twice.

A long extension substantially increases the risk that Article 50 will be revoked, or further extended (and the EU is the master of the never-ending transition). It also substantially increases the likelihood of a general election at a time when those who wish to return the UK to its socialist past are most likely to succeed.

What value is there in leaving the EU, even under the odious terms of this Deal

Passing the Withdrawal Agreement does bring some benefits. To state the obvious, we will have left the European Union. This matters because it changes the dynamic. We can no longer revoke Article 50. Any future referendum would have to argue to rejoin the EU. Crucially, being out allows us to line up our allies.

I have been asked many times whether I believe that, even under the shadow of the backstop, a successful negotiation of Phase Two would be possible. While this will be incredibly difficult, I do believe with the right team and the right approach, it is possible.

First, it will require a Prime Minister who believes Brexit can bring political and economic benefits, rather than treating it as a damage limitation exercise. This is a necessary, but not a sufficient condition for success. The current PM has now said that she will resign days after the date we officially leave (May 22) if her deal passes. In effect she is prepared to lay down her political life in order that the UK should leave the EU in an orderly fashion and allow someone else to negotiate the crucial next phase. I did not change my view until I saw that there was a pathway to a radically different phase 2 team and negotiating approach. That pathway exists now. It is, of all the changes in the last few weeks, by far the most important one. If it had not been given, I would still support voting against the deal because I would have no confidence that the plan I set out below would be implemented. I have also concluded that this transaction is the only way that such a change could ever be secured.

What Could the Phase 2 New Leader do?

The new Prime Minister’s negotiating strategy will be crucial to realising the Brexit prize. The new leader will have to embrace a completely different approach – not piecemeal but wholesale change to the structure of negotiations, the relationship with our trading partners and the domestic policy necessary to make the most of Brexit. These three components – our approach to the EU, our approach to the rest of the world, and our approach domestically – must be executed in parallel in order to succeed. Taking away any one leg, will tip the stool and send the UK crashing towards a less prosperous future.

A new leader must make structural changes at the heart of Westminster. All the UK’s trade policy, including the future relationship with Europe and negotiations with the rest of the world, must be conducted by the same leadership team, which should be the Department of International Trade (DIT). We must have a single trade policy encompassing all our partners including the EU. Already, the separation of this policy has been fatal.

The DIT team should be supported by a new inter-ministerial political process, chaired by a Minister whose function is to coordinate departments around a single vision of UK trade policy, including domestic competitiveness. Any trade negotiations should be handled by the Secretary of State for International Trade, supported by the DIT team, and the Minister referred to above. We should recognise that even the most technical aspects of trade negotiations have a strong political dimension. The new negotiating team or teams must have political heavyweights beyond the Cabinet as part of their structure, not ministers appearing in a cameo role at the end of a negotiation but in the day to day.

The next Prime Minister must prepare the country for life outside the European Union. We need to ensure that the UK remains an attractive environment for investment and innovation through a review of tax and regulatory policy, to create a genuinely pro-competitive environment. The new Prime Minister should announce a cross-government review of behind-the-border trade barriers and market distortions that hamper our domestic competitiveness. We also need to explain to UK firms that it is possible to negotiate a good FTA with the EU to protect their supply chains while creating opportunities outside the UK and EU27.

Economic prosperity is vital, but we must also take the opportunity to shape a patriotism fit for the 21st century. Our foreign affairs strategy should recognise the importance of maximising soft power. The UK, already at the heart of many global organisations, could play an even more important role in the future. Along with trade, our defence policy must also be integrated into our foreign and economic policies.

The new Prime Minister should work to strengthen the Union. This means a renewed focus on power-sharing in Northern Ireland and working with the devolved administrations of Scotland, Wales and NI to find specific export opportunities outside the EU for their farmers and businesses.

It is essential that DIT is put in proper charge of a robust trade policy. Which brings us to our future relationship with the EU. The first thing to do is work up a comprehensive EU-UK Free Trade Agreement (FTA) and submit it to the European Commission.

Turning to the rest of the world, the UK-US FTA should be a top priority. We should immediately lay two agreements with the US. First a UK-US FTA, and second the UK-EU FTA so that we can explain that both agreements work together to satisfy the US’ negotiating objectives with the wider world and protects their supply chains between the UK and the EU27.

Beside the economic relationship with the EU and the US, the third priority is early accession to the Trans-Pacific Partnership of 11 countries, including Japan whose supply chains it also protects. We can align our allies when we are no longer EU members, under the authority of Article 124(4) of the Withdrawal Agreement and we must use the time profitably while the EU awaits its new parliament and commission. That work must start immediately and any outgoing administration must not get in the way of it.

How much of our trade strategy could we accomplish in a long extension?

For those of us who champion international trade, the consequences would be severe. While trade agreements are legal documents, negotiating them is inherently political. There is a window for Britain to secure comprehensive trade agreements with countries representing 60% of global output but that window is brief. Our partners have been patient with us because they had been led to believe that we would be a third country as I write this piece.

The US agreement is an end in itself but also serves as a means to securing a better outcome with the EU. As US primaries start in March 2020 and the appetite for serious policymaking with quickly diminish, it is essential we make good progress on a deal this year. What is more, the Trade Promotion Authority (TPA), which allows the president to negotiate trade agreements that Congress then approves or rejects, expires in July 2021. We have a small window with the US, and if we have not made significant progress by March of next year, this opportunity will evade our grasp. The US administration is extraordinarily well disposed to the UK and to Brexit and Brexiteers in particular. Statements of support for the UK-US FTA and for what the UK should not give away with the EU in order to keep that alive have been made in ways that no US administration has ever made in my experience. All of this goodwill will be lost in a long extension.

The Japanese believe that the UK’s early accession is crucial to the balance of the agreement and could draw the US back to the negotiating table. The Japanese will lose their interest in us if we are not one of the first accession countries to the CPTPP. In a long extension the US and the Japanese will flip and simply demand that we retain the status quo with the EU. We will not be able to advance because we will still be EU members as the EU will no doubt tell all of our trading partners, interfering constantly with our attempts to get anything done.

The Australians and New Zealanders will be much further along in their negotiations with the EU and these will rise in importance, just as our importance will fade.

Given the realities of geopolitics and election cycles, a long delay will sap all of our external leverage. We will be even more vulnerable to the EU than we already are, guaranteeing a bad deal in phase two. We will emerge, blinking from our extended sleep, and wonder where all our trading partners are. The sad reality will be that they will have moved on, and we will have to negotiate with the EU alone and friendless.

Furthermore, the EU won’t negotiate the future economic relationship until we are out of the EU – i.e. after the A50 period – so a long extension solves nothing. It also increases business uncertainty for an intolerable period, dampening investment. Beyond economics, holding EU elections three years after we voted to leave the EU will have a corrosive effect on democracy. The impact on UK politics if we have not left the EU five years after the Referendum could be severe. A long extension weakens the mandate of the referendum, giving space for a second referendum and time for opponents of Brexit to get their way.

The only new leader likely to emerge in a long extension will be the one produced by a general election which will not take place at a moment of the government’s choosing.

So what is the least worst option?

All of this leads me to the conclusion that the only viable course is to back the deal, leave the EU and continue the fight for full sovereignty and economic prosperity on the other side. I appreciate the deeply held convictions of those who say this is so bad a deal that they would rather be in the EU. Emotions run high when so much is at stake but it is even more important to keep our heads. I fully acknowledge that the journey ahead will be hard. To paraphrase a great British leader, I have nothing to offer you but blood, tears and sweat. The forces that want to lock us into the EU are almost irresistible. Almost. There is no guarantee of strong leadership. But I have outlined a strategy which could work and one I believe we should all fight for, and which a government that does not only see Brexit as a damage limitation exercise can win.

To those MPs who, like me, cannot stand the Withdrawal Agreement, I say it is possible to negotiate a free-trade agreement with the EU. It does not mean that we are automatically headed for a customs union, rule-taker future. That will depend on the leader we have in phase 2, for which there is now a clear pathway. The fight will not be over when we have concluded the first phase. We will need even greater resources, courage and steel to win phase 2, especially as I will concede that job has been made profoundly more difficult by this agreement. But the fight will be over, and the establishment forces will have won, if we hold out for an impossible dream.